Thursday 11 April 2013 15.24 EDT
First published on Thursday 11 April 2013 15.24 EDT

MPs have called for an inquiry into why former HBOS bosses were given almost £1m in "bonuses for going bust".

Seven HBOS directors collected cash bonuses of £914,000 in "change of control" payments when the bank was rescued by Lloyds and bailed out with £20bn of taxpayers' money in 2008.

John Mann, a member of the Treasury select committee, told the Guardian the payments were scandalous and said there "could not be a more blatant reward for failure".

He added: "This is taxpayers' money being used to pay bonuses to bankers that brought down their own bank and cost thousands of ordinary workers their jobs. These are bonuses for going bust."

Mann said the former bosses of the failed bank should pay the money back immediately and called for an inquiry to investigate why they were paid the cash.

"The money needs to be repaid, and if it's not, these people need to be drummed out of the financial services sector entirely," he said. "This is emerging as a full-blown scandal and warrants a full inquiry by the select committee. We need to know what due diligence was done."

Pat McFadden, a member of the parliamentary commission on banking and one of the authors of its scathing report published last week, said: "These guys are incredible. This sounds like amazing rewards for failure.

"The banking commission report showed the bank was pursuing an ultimately disastrous strategy that should result in them taking responsibility, not getting extra rewards."

McFadden also called for an investigation into the payments, which he described as "a reward for being taken over by us – the taxpayers". He said: "It's our money. We bailed them out for their failure – and they got bonuses for it."

On top of the cash bonuses, the seven directors received 8,600 share bonuses at an undisclosed price band. The bonuses were paid on top of salary, pension contributions, awards in lieu of pension and redundancy payments.

Andy Hornby, the chief executive of HBOS at the time of its near collapse and takeover by Lloyds, collected £251,000 cash and 2,051 shares as a result of the change of control.

The others cashing in were Peter Cummings, the head of corporate lending who was fined £500,000 by the Financial Services Authority; Mike Ellis, former finance director; Philip Gore-Randall, former chief operating officer; Colin Matthew, who led the expansion into Ireland and Australia that cost the bank £14.5bn; Jo Dawson, former risk director; and Dan Watkins, her successor.

HBOS's 2008 annual report said the payments were awarded "in accordance with contractual entitlements". It said HBOS's remuneration committee excluded "payments in relation to the 2008 financial year [the year HBOS failed]", but allowed the directors to benefit from awards due to them for other years.

It said: "[When] these arrangements were settled, Lloyds did not own HBOS. All decisions with respect to the redundancy or severance terms applicable to departing HBOS senior executives, including pensions, were made by the HBOS remuneration committee or board of HBOS, prior to the acquisition by Lloyds."

A spokesman for Lloyds was unable to state why the bosses received the money, or if any have decided to pay the cash back. Hornby, now chief executive of bookmakers Coral, declined to comment.

The revelation of the change of control bonuses comes as pressure mounts on HBOS's former bosses to pay back millions of pounds of pension contributions collected from the bank after the parliament report blamed "a colossal failure of management" for the bank's near-collapse.

Sir James Crosby, the boss of HBOS until 2006 and the man described by the parliamentary commission on banking standards as the "architect of the strategy that set the course for disaster", has said he will give up his knighthood and 30% of his £580,000-a-year HBOS pension.

David Cameron's spokesman said it was "a matter for their consciences and judgment" whether HBOS's other former bosses follow his example.

Matthew is collecting a HBOS pension worth £416,000-a-year. Cummings is on a £344,000 pension.